Working While on Social Security? There's a Big Hidden Benefit, but an Equally Big Drawback

A lot of people wait until they retire to claim Social Security. And a lot of people also assume that once they retire, they shouldn't plan to work any longer.

But working as a retiree offers a number of benefits. First, the extra money can be helpful. It could give you more spending flexibility and added peace of mind.

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Secondly, work could serve as a social outlet. If you don't have a large network of friends or family nearby, going to a job a few times a week gives you a chance to interact with people.

Also, some people thrive on structure. Having a job could make it easier to settle into a retirement routine.

Now you may be wondering if it's possible to work and also collect monthly benefits from Social Security at the same time. And the answer is yes, absolutely.

There's actually a big hidden benefit to working while receiving Social Security. But there's an equally large drawback you need to be aware of.

The surprising upside of working while on Social Security

The monthly benefit you're eligible for from Social Security is based on a few different factors, including your wage history and filing age. Once you turn 62, you can claim Social Security at any time. But you won't get your monthly benefits without a reduction until you reach full retirement age, which is 67 for anyone born in 1960 or later.

Social Security takes your 35 highest-paid years of income into account when determining what monthly benefit you can get. If you retire and claim Social Security without a full 35-year work history, you'll have a $0 factored in for each year you're missing an income. But if you work part-time in retirement while collecting Social Security, those wages actually count toward future benefit payments -- even if you're already on Social Security.

For example, if you're new to Social Security and only have a 33-year work history, earning $20,000 this year will mean replacing one year of zero income with an actual income. That could raise the value of your future benefit checks.

One big pitfall you'll need to keep in mind

Though you're allowed to work and collect Social Security at the same time, if you do so before reaching full retirement age, you'll be subject to an earnings test. And earning too much money will put you at risk of having some of your Social Security income withheld.

In 2025, you'll lose $1 in Social Security per $2 of income if you earn more than $23,400. The exception is if you'll be reaching full retirement age this year. In that case, you'll lose $1 in Social Security per $3 of income if you earn more than $62,160.

Again, this rule only applies to you if you've filed for Social Security ahead of full retirement age. And you should understand that withheld benefits aren't forfeited forever -- that money comes back to you in the form of larger monthly checks later on. But it's important to recognize that earning too much money could result in slashed Social Security checks for the time being.

Working in retirement can be a very positive thing. It's important to understand the ways having a job later in life could affect your Social Security benefits -- for better and for worse.

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